By Jane Chanda
Economist Shenford Siamutwa says the Bank of Zambia (BOZ)’s decision to maintain the Monetary Policy Rate at 13.5 percent is a delicate balance between controlling inflation and supporting economic growth.
In an interview with Daily Revelation yesterday, Siamutwa explained that when BOZ increased the Monetary Policy Rate, it meant the cost of borrowing increased, affecting businesses and the interest rate channel.
He said on the other hand, when BOZ decreased the policy rate, more people could borrow from banks, which also borrowed from the Central Bank, creating a chain effect.
He added that maintaining the rate at 13.5 percent meant that the general price level and macroeconomic fundamentals would remain the same, with no significant impact on household spending.
Siamutwa emphasised that the Monetary Policy transmission mechanism worked through the interest rate channel, exchange rate channel, and general price level, ultimately keeping the overall impact of maintaining the MPR at 13.5 percent.
“This means prices in shops like Shoprite and Pick n Pay will remain the same, but if the rate had increased further, we would have seen higher inflation and higher prices for commodities, affecting businesses and entrepreneurs,” he said.
Siamutwa explained that the decision to maintain the rate was likely influenced by the current economic conditions, including the depreciation of the Kwacha and its impact on import prices.
“The Bank of Zambia is trying to balance the need to control inflation with the need to support economic growth, and maintaining the rate at 13.5 percent is a way of achieving that balance,” he said.
The economist also highlighted the importance of the monetary policy transmission mechanism in understanding the impact of the Central Bank’s decisions on the economy.
“It’s a complex process, but essentially, the mechanism works by influencing the interest rate channel, which affects borrowing costs and spending, and the exchange rate channel, which affects import prices and inflation,” he said.
Siamutwa said as BOZ continued to navigate the challenges of inflation control and economic growth, its decisions on the monetary policy rate would remain a key area of focus for economists and policymakers alike.
“The Bank of Zambia’s decision to maintain the monetary policy rate at 13.5 percent is a prudent move, considering the current economic conditions,” Siamutwa said. “It’s a delicate balance, but one that is necessary to ensure sustainable economic growth and stability.”
